FDI is rising, but not visibly in core ‘Make in India’ sectors

August 17, 2016 — INDOLINK Consulting (es)

Source: LiveMint.com, Aug 17, 2016

The last two years have seen a robust increase in inflows of foreign direct investment (FDI), particularly in the form of equity subscriptions. However, much of the increase is happening in the services sector, and not the manufacturing sector, which the government has made the centrepiece of its ‘Make in India’ campaign.

Global Greenfield Investment Trends released by FDI Intelligence earlier this year said India was ahead of China in FDI. According to the report, India attracted $63 billion in 2015, against China’s $57 billion.

More recently, India’s commerce and industry minister Nirmala Sitharaman informed the Rajya Sabha that FDI in equities went up by 46% between October 2014, when the government launched its ‘Make in India’ campaign, and May 2016, pitching it as evidence that the programme was showing results.

Indeed, in the last two years, overall FDI has grown at a solid 25% and 22%, respectively. This has been accompanied by the continuing increase of equity FDI.

In the last three years, equity FDI has been consistently above 70%, an indicator there is a fresh interest in India, and it’s not just committed investors who are ploughing back money.

…has a weak link to the centrepiece of the ‘Make in India’ programme.However, its impact on the centrepiece of the ‘Make in India’ campaign—the manufacturing sector—is yet to be visibly seen.

The programme included a clutch of policy changes in FDI in manufacturing, intellectual property rights and industrial corridors, all aimed to increase investments, innovation, jobs and infrastructure in a set of 25 focus sectors.

Sector-level FDI data is available for 18 of these 25 sectors. This shows that foreign investors are yet to direct visible interest into manufacturing sectors, exceptions being automobiles and chemicals.At the top level, much of the new FDI has gone into sectors belonging to the services and construction segments. Even the spike in FDI in computer hardware and software has to be read with a rider: 92% of this was in software.